Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Aratana Therapeutics Inc (NASDAQ:PETX) changed recently.
Aratana Therapeutics Inc (NASDAQ:PETX) has seen a decrease in support from the world’s most elite money managers recently. Our calculations also showed that PETX isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
| Kevin Kotler |
We’re going to review the key hedge fund action regarding Aratana Therapeutics Inc (NASDAQ:PETX).
What does the smart money think about Aratana Therapeutics Inc (NASDAQ:PETX)?
Heading into the fourth quarter of 2018, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in PETX over the last 13 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Broadfin Capital, managed by Kevin Kotler, holds the biggest position in Aratana Therapeutics Inc (NASDAQ:PETX). Broadfin Capital has a $23.8 million position in the stock, comprising 3.5% of its 13F portfolio. Sitting at the No. 2 spot is Glenn W. Welling of Engaged Capital, with a $23.7 million position; 3.3% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism comprise Israel Englander’s Millennium Management, Jim Simons’s Renaissance Technologies and Peter Muller’s PDT Partners.
Because Aratana Therapeutics Inc (NASDAQ:PETX) has faced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds that decided to sell off their full holdings in the third quarter. Intriguingly, Anand Parekh’s Alyeska Investment Group cut the biggest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $0.6 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $0.1 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Aratana Therapeutics Inc (NASDAQ:PETX). These stocks are BankFinancial Corporation (NASDAQ:BFIN), Codorus Valley Bancorp, Inc. (NASDAQ:CVLY), Cumulus Media Inc (NASDAQ:CMLS), and Alico, Inc. (NASDAQ:ALCO). This group of stocks’ market values are similar to PETX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BFIN | 4 | 15941 | -1 |
| CVLY | 4 | 28417 | 0 |
| CMLS | 6 | 86474 | 6 |
| ALCO | 6 | 39146 | 0 |
| Average | 5 | 42495 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $52 million in PETX’s case. Cumulus Media Inc (NASDAQ:CMLS) is the most popular stock in this table. On the other hand BankFinancial Corporation (NASDAQ:BFIN) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Aratana Therapeutics Inc (NASDAQ:PETX) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
